Calculating Exponential Moving Average

Question

I looked up EMA on wikipedia, but I could not understand the explanation. Can anyone break it down with an example ?

Answer 1

EMA = (Price * Alpha) + (Previous EMA* (1 - Alpha))

Where Alpha = 2/(1+N)

AND N = Number of Trading sessions.

Suppose Reliance is trading at Rs. 1000 a share and its previous days EMA is 950, then to calculate EMA for 10 days, It would be like:-

(1000* (2/(1+10)) + (950 * (1-(2/1+10))

=(1000 * (2/11)) + (950 * (1-(2/11))

=(2000/11) + (950 * (1-(2/11)

=181.81 + (950 *0.8181)

=181.81+777.27

= 959.08

If you need to calculate EMA for 15 days, then just substitute N with 15.

Cheers!